Introduction:
The Union Budget 2026 marks a significant policy intervention in the domain of international taxation and compliance with the introduction of the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (the Scheme). The Scheme provides a limited-period opportunity to specified taxpayers to voluntarily disclose certain undisclosed foreign assets or foreign income and obtain immunity from further tax consequences, penalties, and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015(“Black Money Act”).
The Scheme reflects a calibrated approach by the legislature balancing strict enforcement against wilful tax evasion with relief for small taxpayers, returning non-residents, and cases involving inadvertent or technical reporting failures.
Legislative Framework and Commencement
The Scheme is contained in sections 114 to 128 of the Finance Bill, 2026. It shall come into force from such date as may be notified by the Central Government and shall remain open until a “last date” notified in the Official Gazette. The Central Board of Direct Taxes (CBDT) has been vested with wide powers to issue directions, prescribe procedures, relax provisions in public interest, and frame rules for effective implementation of the Scheme.
Applicability:
The Scheme applies to
- A person who are resident in India within the meaning of section 6 of the Income-tax Act, 1961
- A person who are currently non-resident or not ordinarily resident, but were resident in India either in the year to which the undisclosed foreign income relates or in the year in which the foreign asset was acquired.
Exclusion from scheme
The Scheme does not apply to income or assets representing proceeds of crime where proceedings have been initiated or are pending under the Prevention of Money-laundering Act, 2002. It is also inapplicable to cases where assessment proceedings under the Black Money Act have already been completed.
Eligible Assets and Income
The Scheme permits declaration of undisclosed assets located outside India, including financial interests in foreign entities held directly or beneficially, where the source of investment is unexplained or considered unsatisfactory. It also covers undisclosed foreign income, being income from sources located outside India that was chargeable to tax in India but was not offered to tax under the Income-tax Act. Declarations may be made for any previous year, including years prior to the previous year ending 31 March 2026.
Conditions for Making a Declaration
A declaration may be filed where the assessee has
- failed to furnish a return of income, or
- has furnished a return but failed to disclose the relevant foreign asset or income, or
- where such income or asset has escaped assessment under section 147 of the Income-tax Act, 1961.
The declaration should be filed electronically in the prescribed form. Any false statement or violation of the conditions of the Scheme renders the declaration invalid.
Categorisation and Amount Payable
The Scheme adopts a two-tier structure that distinguishes between substantive tax evasion and mere reporting or disclosure lapses.
| Category | Eligibility / Nature of Default | Value Threshold | Tax / Fee Payable | Relief & Outcome |
| Undisclosed Foreign Assets or Income (Small Taxpayers) | Undisclosed foreign assets and/or foreign income chargeable to tax in India | Aggregate value of foreign assets and income not exceeding ₹1 crore | ·30% on FMV of undisclosed foreign assets as on 31 March 2026
·30% on undisclosed foreign income · 100% Penalty on tax payable |
Complete immunity from further tax, penalty, and prosecution under the Black Money Act in respect of the income or asset declared |
| Reporting Defaults without Tax Evasion | Foreign assets acquired from
a) income earned during non-resident period; or b) income already offered to tax in India, but not disclosed in FA schedule on becoming resident |
Value of foreign asset not exceeding ₹5 crore | Flat fee of ₹1,00,000* | Regularisation of disclosure lapse with no further tax or penalty; significant relief for returning NRIs and professionals |
* Apparently, it seems that the flat fee of INR 1 lakh is payable once per declarant (per declaration), and not year-wise, provided all eligible reporting defaults are covered in one declaration. However, if multiple separate declarations are filed (instead of one consolidated declaration), the department may levy the fee per declaration. Final clarity may also emerge through CBDT Rules / FAQs / Forms, once notified.
Procedure and Payment
After electronic verification of the declaration, the prescribed income-tax authority shall issue an order electronically determining the amount payable. The declarant is required to make payment within two months from the end of the month in which the order is received.
An additional period of up to two months is available for payment along with simple interest at the rate of 1% per month. Upon payment and submission of payment intimation, a certificate confirming compliance under the Scheme is issued electronically. Such certificate is conclusive as to the matters stated therein.
Tax Consequences
Income or assets validly declared under the Scheme shall not be included in the total income of the declarant under either the Income-tax Act, 1961 or the Black Money Act, 2015.
Amounts paid under the Scheme are non-refundable. Further, the declarant is not entitled to seek rectification, revision, set-off, or appellate relief in respect of the income or asset declared, ensuring finality of proceedings.
Immunity from Penalty and Prosecution
A declarant who makes a valid declaration and pays the prescribed amount is granted immunity from any further tax, penalty, or prosecution under the Black Money Act in respect of the income or asset so declared, for the previous year ending 31 March 2026 and all earlier years.
Effect on Pending Assessments
Where assessment proceedings under the Income-tax Act or the Black Money Act are pending in respect of the income or asset declared under the Scheme, the Assessing Officer is required to take such declaration into account while finalising the assessment.
Conclusion:
The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 represents a pragmatic compliance initiative that seeks to balance enforcement with fairness. By clearly distinguishing deliberate evasion from genuine disclosure lapses, the Scheme provides a valuable opportunity for small taxpayers and returning NRIs to regularise past non-compliances with certainty and legal finality.
The effectiveness of the Scheme will depend upon clarity in subordinate legislation, valuation rules, and timely implementation. Nevertheless, the Scheme marks a constructive step towards enhancing voluntary compliance in the international tax framework.
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Niranjan Shah | Chartered Accountant | S N S S & Co | niranjan@snssindia.in | +91 982 586 0488
Disclaimer: This blog is intended for educational purposes only and should not be interpreted as advice. It is recommended to seek guidance from a qualified professional for advice relevant to your circumstances. For any feedback, inquiries, or suggestions, please feel free to reach out to the author.
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